The freak-y-omics of natural gas distribution

For anyone who follows the energy discussion in New Brunswick, you know that the distribution rate for large users of natural gas is the highest in North America – by a wide margin. The largest industrial users are paying two times the cost of the gas itself in distribution charges (on the first huge block of gas usage). I have been arguing this rate structure means it is highly unlikely that any large users of natural gas will ever invest in New Brunswick (although I hear there is the possibility of a workaround).

Cavendish Farms plan to cut costs and greenhouse gas emissions with a switch to natural gas. In a press conference Monday at the company’s plant in New Annan. officials said the P.E.I. potato growing giant aims to cut production costs by 30 per cent and greenhouse gas emissions by 28 per cent. It’s also eliminating the use of 29 millions litres of heavy oil per year. Robert Irving, president of Cavendish Farms, said the investment will be good for both business and the environment. “As with our investment in bio gas, we are always looking to reduce our carbon footprint while making our plant more competitive.” The company is receiving a $15-million loan, which is on a five-year term, from the Province to help build a receiving station for the natural gas, which is to be transported in large cylinders carried by truck. The gas will be extracted from the Maritimes and Northeast Pipeline in a location near Port Elgin, N.B.

You know the distribution system is messed up when a company can distribute natural gas by truck and still “cut production costs by 30 percent” while large users in New Brunswick like Flakeboard say their natural gas costs are dragging them under. Maybe that is what we should do in New Brunswick. Allow large users to back up trucks to the main pipeline and fill ‘er up.

I understand all the historical dynamics of the gas distribution system, the deferred revenue, the ROE, the SEUFs, blah blah blah. As an economic development consultant, my concern is that New Brunswick is off the table for energy-intensive industrial projects because of massive gas distribution charges.

I hope the energy commission addresses this and the broader issue of energy competitiveness head on.

11 Responses to The freak-y-omics of natural gas distribution

Actually, I think of something different-and has nothing to do with PEI. Why is it that there is an LNG terminal right IN Saint John, yet NB lets Enbridge have a monopoly, and from what I can tell, all that gas goes directly to the US. What I find particularly strange is that an Irving factory doesn’t even get gas from the LNG terminal which another Irving company owns? Irving was famous for saving money by purchasing all the companies in the supply chain, that an Irving factory wouldn’t get gas from a few miles down the road-and you would think at a premium-is something I really don’t understand.

I got an email asking for clarity on this. So to be clear. Under the current system it would be far more cost effective for a large user of natural gas to set up on PEI – without any natural gas distribution infrastructure – and truck the gas from the main pipeline in New Brunswick – than to set up in Saint John – right next to the LNG terminal.

This is still pretty confusing and raises more questions. For NB, the EUB sets distribution charges based on the cost of natural gas in relation to a barrel of oil. I think its the distribution charge that is the issue, and this ratio is the problem, according to Flakeboard, Ganong, and Irving.

That’s the legislation that Ganong and Irving want changed (ironic that in this case ‘the market’ is the problem and these corporations are demanding the government step in and legislate the cost-Irving sure never felt that way when it was oil).

What isn’t clear is that EnbridgeNB wants a HIGHER distribution cost. So I don’t understand how it is that Cavendish can call them up and say “hey, I know you have a high distribution cost in NB, but how about selling it to me cheaper”. Why would a private company that constantly wants higher prices in NB-but is held back somewhat by the EUB-be willing to sell cheaper to another province? That makes zero sense to me.

And I’m still not sure what kind of legislation there is that says Ganong and Irving CAN”T buy natural gas from Irvings own LNG. I wouldn’t be surprised if a monopoly interest were being protected, but it would be nice to get more info on it.

It’s also interesting that I found out that EnbridgeNB is 70% owned by Enbridge, and 30% owned by “private NB investors”. It would probably be interesting to know who those NB investors are.

If it were anyone else, I would be sympathetic. But the fact that it’s the province’s largest energy company – Irving – complaining about high energy costs that strikes me as rife with hypocrisy.

And – after all – the case Enbridge makes, that despite its rates it is *still* cheaper than the other energy suppliers, has an edge and a tone to it. You’ve got some gall, Enbridge must be saying to Irving, saying that *our* rates are too high.

And, one wonders, why – with its LNG terminal in Saint John, why did we have to wait for Enbridge to come in from Alberta and build a gas distribution network?

From my admittedly incomplete vantage point, it looks to me like Irving and its allies are in a fix of their own making. With the usual impact on the NB economy.

Some investigative reporting on this issue is warranted. For example, it is not Enbridge who has the gas distribution, it is Enbridge Gas New Brunswick which is owned 70% by Enbridge Inc. and 30% by private NB investors. It would be interesting to know who those private investors are.

It appears Enbridge Gas NB has a 20-year monopoly on gas distribution in the province through the General Franchise Agreement (GFA) granted in 1999. Single end users are granted permission to draw gas directly from the Maritimes and Northeast Pipeline and as a result, Enbridge reports that they distribute only 20% of the gas in the province. It would be interesting to know who has single end user agreements. Enbridge reports they are large users in the Saint John area: http://naturalgasnb.com/en/home/aboutus/independentnaturalgasdistributionsystems.aspx It would also be interesting to know what happens when the 20 year agreement expires; is there a renewal option or is it open for proposals?

It is also important to understand that Cavendish is obtaining their gas from the Maritimes and Northeast Pipeline (not the Enbridge Gas NB distribution system). Presumably, the GFA does not restrict trucking to PEI, however, it would be interesting to see more facts on this GFA and single end user agreements. For example, are single end user agreements still available? It would seem Cavendish has exposed a work around for NB industry to avoid the EGNB distribution but is gas distribution by truck prohibited in NB?

Finally, for additional reading, a draft of the Energy Commission report is available here: http://www.gnb.ca/energycommission There is a section on natural gas (see recommendations 6, 7 and 8) which are suggesting significant changes to gas distribution; another reason a clear explanation of facts would be helpful before entertaining changes in policy and regulation.

As an Ex-Enbrige Gas New Brunswick (EGNB) employee hopefully I can provide a bit of clarity. To be fair I will try not to sound biased nor disgruntled because I am honestly neither of those. The cost that the end user sees on his gas bill is composed primarily of the following charges, #1 the cost of the gas (which EGNB has no control over), #2 distribution charge (which EGNB has control over and quite frankly is where they make the majority of their money because they are primarily a distribution company, not a gas company), and #3 meter rentals (which is somewhat minor but bearing the upfront cost of meters would be a deterrent to new customers so they spread it out). EGNB only owns the distribution rights inside New Brunswick. The “workaround” that David is alluding to is as follows. The main sable gas line that is owned and operated by Maritimes Northeast Pipelines (MNP) runs through NS, then up through southern NB, then down into New England. EGNB taps into the MNP line in a few places to feed Sackville, Moncton, Fredericton, Saint John, Flake board plant, etc. EGNB is the only distribution company allowed to tap the MNP line in NB to supply the general market and distribute natural gas for profit. Any company that wishes to connect into the MNP line and serve themselves can do so but they must bear the cost of building the distribution pipeline themselves and maintain it and all that jazz. In most cases this makes little sense because the MNP line runs in the middle of nowhere and EGNB spreads the cost of its network to all its customers so they car do it. So, as in the case mentioned above, if someone wishes to fill up a truck off of the MNP line in NB and truck it over to PEI they can legally do so and their is nothing EGNB can do about it.

This represents the good AND the bad of the internet. Two well informed comments that say the opposite to one another. If ENB is only providing 20%, who are the others? If it IS cheaper to drive a truck to the pipeline and withdraw it, then why doesn’t Irving, Flakeboard, and Ganong’s simply drive a truck up to the pipeline and provide their gas THAT way?
The article says it is being trucked from ‘near’ Port Elgin, so is it possible that it is coming from Nova Scotia and ENB doesn’t have anything to do with it, and THATS why distribution costs would be so low?
The monopoly doesn’t surprise me, but if its true that 80% is coming from somebody other than ENB, as said above, that would be interesting to know. I remember a real huff from years ago when a group wanted to provide bus service to a rural area. But because bus service makes so little money, the company that currently provides it (badly) has a monopoly contract so that it is ILLEGAL for anybody else to start up any kind of competing bus service.

This seems a real problem for NB. The province COULD have made a fortune if it has simply signed on to build or co-build the LNG plant. Yet there is such animosity against government ‘in’ business, that it can only get manifest in singular – and bizarre- ways, like provincial beer. Had NB gotten an equity investment in the LNG terminal in exchange for the very generous property tax credit, the province probably wouldn’t be in the red right now. Anyway, any more links or info on this subject is appreciated.

I forgot to mention, MANY of these details are probably buried in the legislation that was enacted for the gas pipeline in, I think it was, 1999, or maybe it was later. I just remember that I always used that example in my website on the new Residential Tenants Act, because the new RTA took about five years from the time it was announced to when it was finally enacted. And the legislation for the gas pipeline act was given first reading, second reading, third reading, proclaimed, and enacted- all in ONE day (unless my memory misserves me).

I am assuming, and correct me if I am wrong, that the two informed posters were “Anon” and myself. Re-reading “Anon”‘s posting I don’t see where we contradict ourselves. Please identify the contradictions and I will attempt to clarify.

Yes, those are the comments. You said that only ENB has a license-that other companies ‘can’ distribute gas but must set up their own infrastructure, which isn’t worthwhile. The anon comment says that ENB actually has only 20% of the gas clientele, meaning that obviously a LOT of companies have their own infrastructure. IF that many other companies can do it, then why can’t Irving? From the map I saw, the pipeline isn’t actually THAT far from St.Stephen. So trucking it to Flakeboard or Ganong SHOULD be cheaper than PEI. So what is it I’m missing?

Hope that didn’t sound rude, because those are the kinds of comments I love to read and its welcome information, and I’ll admit that it takes me awhile to wrap my head around information.

#1 the right to distribute issue:I will attempt to clarify. EGNB is the only company who can distribute gas commercially for profit. Any other company (referred to as a “single end user”)can tap the MNP line and use gas for their own consumption (i.e. bring it directly into their plant for consumption). EGNB is the only company who can tap the MNP line and distribute commercially. That is what I meant.

#2 EGNB only distributes 20% of gas in NB: What ANON means is that of the total gas volume being consumed in NB, EGNB only distributes 20% of that total number. This could be true because a large industrial user (or “single end user”) could conceivably consume as much gas as a small NB city so if there are several single end users then they would represent the majority of consumption and EGNB would not get a cut of any of that.

#3 the trucking gas issue: This would be legal but I am not sure if its economical but it’s simple math to figure it out. If it is cheaper to do then it would make sense. My personal opinion is that these statements might be more political posturing to try to apply some pressure on EGNB and the government but if it is true and it does makes sense then EGNB seriously needs to look at what they are doing.

Hopefully this helps to clear things up and if it does not feel free to ask for more clarification. Also, don’t worry about sounding rude, my comment may not been as clear as it could have been and I try not to assign a tone to an email because its often wrong.